According to the UPECO consulting company data, last year the LPG-market grew up to 1.1. mln t (the calculations does no not include broad fraction of light hydrocarbons (BFLH), which is crude for gas production). In comparison to 2014 the growth was 15% (about 160.000 tons). LPG already holds about 13% of the overall market balance of light oil products.

Internal decrease
In connection with the decrease in natural gas and gas condensate extraction, Ukrainian LPG production continues to decrease too. So, main producers “Ukrgasdobycha” and “Ukrnafta” reduced LPG production by 9.3% (33.400 tons) to 326.700 tons.

LPG output decreased most for “Ukrgasdobycha”. The fall in LPG production at the enterprises of the state company was 12.6% (from 197.500 tons to 172.600 tons) for the reporting period. The reason for such fall is difficult situation in natural gas and gas condensate extraction, which has fallen by 4%. Besides extraction, the production decrease was influenced by the state company’s transition to improved indicators of gas production at the Tymofiyvka installation of advanced extraction of hydrocarbons.

Last spring “Ukrgasdobycha” launched production of propane-butane for vehicles. In the beginning, the new gas had been produced at the Yablunevka department of gas processing and at the technologic department of condensate stabilization “Bazylivshchyna”, but soon because of decrease in marketable LPG output by 10% the company decided to stop production of propane-butane for vehicles at Yablunevka.

In order to increase the lost production, “Ukrgasdobycha” is developing tolling processing of BFLH. Subject to tolling processing TDCS “Bazylivshchyna” is able to take up to 3.000 tons of BFLH mark A and up to 750 tons of mark B per month. But, double taxation for the imported BFLH processing slows down the process.

Gas producing plants of PJSC “Ukrnafta” began to produce less gas. The reason is the same – the overall extraction decrease by 11.5%. According to the results of 2015 the decline in production of the state company was 5.2% - from 163.00 tons to 154.000 tons. Even the construction of the low temperatures separating installation at the Dolyna gas processing plant (GPP) in 2014 did not help the main extractor of Ukrainian oil. The aim of the facility construction was isolating the hydrocarbon condensate from the gas and obtaining BFLH from the oil gas. The installation capacity is 3.400 tons per month.

The Kremenchug refinery also did not keep the level of processing having reduced the output from 67.000 tons to 55.000 tons.

The production of propane-butane of “Poltava Petroleum Company” decreased by 13.5% - from 11.800 tons to 10.200 tons. The overall decrease in oil extraction was 10%. We should admit that the output of the second private LPG producer “Regal Petroleum” remained at the level of the year 2014. The “Smart Holding” company produced about 4.000 tons of propane-butane for vehicles.

Thus, in comparison to 2014 the overall LPG production in Ukraine decreased by 10.7% - from 443.000 tons to 395.000 tons.

The forecast for 2016 for the internal producers remains unpromising. Because of the decrease in oil, gas and gas condensate extraction the LPG production in Ukraine will decrease at the same pace. At the same time, we may expected new market players emerge from the number of private extractors. There are rumors about possible projects in “Geo-Alliance” and “CUBE-Gas”.

Gas needle
Growing market on the background of the decreased internal production was covered by traders’ import. As well as petroleum and diesel supplies, LPG shipment to Ukraine is premium for exporters. In 2015, LPG import increased by one third – to 702.800 tons. We should admit that apart from the volumes mentioned, 11.000 tons of BFLH, which is used for LPG production, were imported to Ukraine. One of the reasons for such low indicators was the short-sighted policy of the Ukrainian government, that does not recognize BFLH as a crude. For this reason broad fraction is still double taxed – when imported and in production of LPG.

First of all the import increased due to the supplies from Russia. LPG shipments from Russian Federation increased from 252.200 tons to 431.700 tons or by 42% for the period mentioned.

The vendors of LPG to Ukraine were “Rosneft”, “Gazprom”, “Lukoil”, “Sibur” and others. Hence, in the structure of LPG import the Russian share grew up to 62.1%. We should admit, that from the point of cost LPG from Russia was more attractive than Belorussian. In different times the difference in prices was from a few dollars to a few tens of dollars.

In their turn, Belorussian producers also increased volumes. If in January-December of 2014 there were 162.200 tons from Mozyr Refinery and Rechyca GPP, in 2015 Byelorussians exported 232.000 tons of gas to Ukraine (30.1% increase), or 32.5% of the overall import.

Producers from Kazakhstan suspended export to Ukrainian market because of low quotes. In the situation of low prices for LPG supplies to Ukraine became unprofitable for Kazakhs due to logistics. Now Tajikistan and Afghanistan are the main consumers of Kazakh LPG. Therefore, the market share of Kazakhstan fell down from 85.100 tons to 37.000 tons or by 56.5%. Exactly LPG from Russia and Byelorussia substituted the sake Kazakh volumes.

The last fall Belorussian GPP (Rechyca) switched from production of propane-butane for vehicles to separate fractions of liquefied gas, that puzzled gas import for those players, which have no storage facilities. However, at “Belorusneft”, which manages GPP, did not refuse propane-butane for vehicles production completely, thus, propane-butane for vehicles from Rechyca shall continue coming to the Ukrainian market not in the previous volumes though.

Hence, the share of import in the overall Ukrainian LPG-market balance in 2015 rose up to 64.3%. Like their colleagues from the petroleum market, Ukrainian LPG-market players have sat on the import needle too.

Growth troubles
In spite of growth and fast progress of the LPG-market in Ukraine, the absence of import supplies becomes more evident. Bet on Russia, Byelorussia and Kazakhstan is fraught with crisis moments. A good example is the situation that took place last autumn. In October-November of 2015 the biggest supplier of LPG into Ukraine, “Rosneft”, delayed shipments. This resulted in panic and prices growth in the local market. Thus, in chase of profit some market players became victims of either political conjuncture or technical failure.

There have been rumors for a long time about the possibilities of diversification of LPG import to Ukraine. In the light of “arid” October-November” the first trial deliveries of about 1.100 tons of propane-butane were executed by the company from Poltava “Nadezhda” from the European fuel hub ARA (Amsterdam – Rotterdam – Antwerp). Although LPG from the EU was more expensive than Byelorussian and Russian analogues, such euro integration process is significant.

Furthermore, market players do not exclude the possibility of supplying LPG also by sea through Black Sea ports. However, in order to accept gas from the sea, transshipments in Odessa, Ilyichevsk and Reni switch to reverse mode (presently they work on transit of Russian and Kazakh LPG to Turkey).

Another problem of Ukrainian LPG-market is undeveloped infrastructure. Absence of gas filling stations (GFS) and, as a result, inability to store the enough stocks, is the reason for actual sales “from the wheels” that is fraught with failures. Only the last year big players approached to increasing of the storage facilities. The capital region market, being abundant with sales, has caught the eye of players. “Nadezhda” finished GFS construction in Kiev region (Borodyanka village). “Gaztron”, that picked a site close to Boryspol, and the company “KLO”, that also found a site in Kiev region, are also aiming at the capital market.

We should admit that a number of market players, including big retailers WOG, OKKO and SOCAR, declare to be ready to build GFS. In the nearest future, it will be possible to visit only the GFS of “Continuum” in Dnepropetrovsk, the launch of other facilities will hardly take place in 2016.

Automobile breakthrough
The increase in LPG-supply to Ukraine by wheels is another tendency of the old year. So, for 12 months of 2015 the share of LPG supply by the vehicle gas carriers increased by 12% and amounted to 85.500 tons. For example, in 2014 this volume was not more than 4%.

In 2015 vehicle gas carriers came to Ukraine from Byelorussia and Russia. The main supplier of liquefied gas by wheels was Republic of Belarus, that took 84.2% of all supplies. “Gazprom”, who operates the network of reference GFS’s near the Ukrainian border in Voronezh, Belgorod and Bryanka regions, shipped LPG by wheels from the Russian Federation. We should admit, a small supply of liquefied gas from Poland took place in June. 80 tons of Novatek Polska LPG was imported by “Agency of investment management”.

The main factor influencing the growth of supply by wheels was price situation. For instance, when importing railway tankers from Byelorussia trader additionally pays “delivery arm” from the station of shipment (“Barbarov” or “Rechyca”) to the border crossing (USD 30-35/t), and then pays for the delivery on the territory of Ukraine and the return of empty tanks. Besides, if a trader does not own a GFS, the price should include the cost of transshipment and storage.

Tank car supplies are first of all advantageous for small companies, which does not own infrastructure, and also for retailers, which deliver goods exactly to their own gas-filling points or sell LPG on DDP basis.

While importing with your own transport margin is lower and this attracts players. In the situation, when the price of diesel is comparatively low (prices in Byelorussia are even lower), traders gain additional profit. As a result, the cost of LPG-supply to Kiev region by tank cars is USD 30-40 with own transport and USD 35-60 with Byelorussian carriers.

Everyone grew up
In 2015 almost all market plyers increased import of LPG. The main weightlifters were “Nadezhda” from Poltava and “BRSM-Nafta”. Last year “BRSM-Nafta” increased supplies by 15% to 91.000 tons. Sells through their own network of gas stations, that makes them the main LPG-retailer, is the exceptional feature of the company mentioned.

In their turn “Nadezhda” remained at the level of the previous year with a result of 87.000 tons. However, due to the BFLH import the overall volumes of the biggest Ukrainian trader increased by 6.2% to 93.000 tons. In the structure of supplies to Ukraine (marketable LPG + crude) “Nadezhda” holds the first place.

We should admit that import of “Propan Trade” has increased by 50% - from 35.200 tons to 71.000 tons. The company imported mainly goods from Russia. It is not clear, why in the favorable market, “Propan Trade” remains the only big importer, which does not own a retail network. It is said, that the company plans to exercise LPG-transit through sea ports in the nearest future.
“Continuum” is the fourth biggest importer and the only who has no GFS yet. In 2015 the WOG subsidiaries increased import by 24.3% to 53 000.00 tons. The supplies of “Avantage 7” has grew up by 44% to 51.000 tons. “Bars 2000”, being scandalously known with his domination in the capital market due to schemes, has increased import by 56% to 41.100 tons. We should admit, that LPG for “Bars 2000” was shipped solely from Byelorussia, that, along with “Avantage 7” makes this company a leader in Byelorussian gas import. “Avtotrans” from Poltava has increased supplies more than twice to 28.000 tons.

In 2015 in LPG-segment we observed mergers and acquisitions. In the end of spring market had spread the news about union of notable players. In May international trader ITL Group, whose representative in Ukraine is “Gaztron”, consolidated the assets of the wholesale and retail operator from Kharkov “Rod-Nik” (GFS in Kharkov and 12 GFP in Kharkov region). Recall that for several years “Gaztron” remained one of the main suppliers of LPG for “Rod-Nik”. Presently the companies shall work in one structure. Consolidated import volumes of the companies mentioned last year were about 44.500 tons.

Company “Master Premium” (brand Start), which imported hugely in the second half of 2015, became a discovery of the last year. Earlier, the trader cooperated with “Odessagaz” companies. From summer “Master Premium” began actively importing Russian gas of “Lukoil-Permnefteorgsintez” Refinery and by the end of the year their import reached 31.000 tons. Besides, new player managed to rent more than 20 GFSs and to set up trade at “Ukrainian interregional specialized exchange”.

However, other big players also felt themselves confident. For example, “Agency of investment management” (AIM) increased supplies by 6% to 21.300 tons. The list of leaders is closed by “UPK-Evroplus”. The volume of import by companies from the UPK-pool stayed at the 2014 level and amounted to about 19.100 tons.

Besides, the retailers OKKO and SOCAR, which became notable in import in the second half of a year, strengthened significantly. Each of them imported about 10.000 tons.

Last year some debutants appeared in the market. Almost all self-respecting traders started importing LPG. As a result the number of LPG-importers to Ukraine increased from 60 to 80.

For the period mentioned the list of LPG-importers was replenished with a huge number of new companies and those who returned to the club of import gas fans after a pause. Among them we can pick out “Jukan”, “Alliance Energo Trade”, “Spetstransservice”, “YK Group”, “Element”, “AK Gazprogress” and others. Besides, “BNK-Ukraine”, being the LPG-supplier for other newcomer in gas segment – UPG gas stations network, entered LPG trading.

BFLH is out of coalition
The problem of BFLH remained unsolved in 2015. As it was foresaid, the broad fraction of light hydrocarbons currently remains double taxed, that prevents traders from supplies increase, and producers such as “Ukrgasdobycha”, “Ukrneft” and PGOC – from processing increase. The suppliers of crude into Ukraine were “Nadezhda”, “Gaztron”, AIM, “BRSM-Nafta”, “Eprom Pro” and PGOC.

Some scopes of BFLH, which were imported into the country in 2015, did not influence the overall market structure hugely. However, in September-November, during delays of supplies from Russia, some players were rescued exactly by the broad fraction, which was imported by them for processing.

We should admit, that in the end of 2015 there were registered two bills envisaging zeroing of excise duty on BFLH imports. If the first bill was crude enough (under duty-free import could be masked marketable LPG), the second provides implementation of fiscal bills of exchange for control over the turnover of the broad fraction. Nevertheless, traders have still many questions to the second bill. However, modified second bill No.3574 have not been considered in Rada yet.

New challenges
The year 2016 brought new challenges to the LPG-sector. From positive sides we should admit the cancellation of the additional import fee of 5%, government adopted by mistake in 2015 not equating LPG to oil products, which are free of mentioned fee.

Nevertheless, the Cabinet of Ministers pushed players with new initiatives. With the beginning of 2016, in accordance with the amendments to the Tax Code, the excise rate changed from EUR 50 to EUR 57/ton. But, from the March 1 the excise duty will be brought to liters and set at the rate EUR 31/liter (after calculation to kilos the excise remains at the rate of EUR 57/ton). Nevertheless, in high governmental circles they do not know exactly how to exercise a “liter” control over LPG, ad trader are not sure if their foreign suppliers will recalculate the volumes from kilos to liters.

But the most important news of 2015 was fixing a retail excise duty on oil products at the rate of EUR 0.042/l instead of 5% of the gas station price. Unlike petroleum market players, excise for gas market ones has doubled. Conscientious players note, that unconscientious retailers will avoid excise as they did before, that will increase their margin twice – to UAH 1/l, which amounts to the duty unpaid.

One more “surprise” for gas traders became increase on the butane and isobutene fraction to EUR 228/t. The provision, which had been aimed at a shadow petroleum market (butane and isobutene are imported under import code 29011, which is used for duty-free supplies of components for mixed fuel production), hit LPG seriously. Either because of lack of knowledge in chemistry, or simply because of not understanding, the authors included LPG fractions to the “bad fuel” list.

We should admit, that the pure butane fraction can not be used without blending with other gas, propane for example. If state does not make advances to the LPG-market, propane supplies to Ukraine will stop, and this is fraught with significant deficit. Moreover, the pure butane fraction plays important technical role. Especially in summer, when pressure in containers exceeds normal and the danger of fire at GFS increases, AGFP surely use butane as the stabilizer that keeps quality characteristics of LPG. Such operations provide stable work of pumps, dozers and gas equipment. According to the UPECO data, 85.000 tons of butane were imported in 2015.

This has not been without pleasant moments, however. Therefore, due to the initiative of “Ukrainian association of liquefied gas” in 2016 there will be significant simplification of provisions on AGFP placement, and on installation of autonomous heating with propane-butane also, that will be additional stimulus for the gas segment development.

Besides, Ukraine plans to shift to European standards of gas quality EN 589 in 2017, and this will significantly clean the market that presently is predominantly powered with communal MTPB instead of gas for vehicles and this is one of Ukrainian LPG-segment problems.

Hence, despite political and economic obstacles during the last two years, Ukrainian LPG-market shows growth, that is covered with import. Curiously enough, that the reason for LPG popularization became the crisis, which devalued hryvnia and forced prices for petroleum and diesel up. In 2014 and 2015 the correlation of prices for A-95 and LPG remains the stimulus for gas equipment installation. The tendency also continues in the beginning of the present year.

At an average annual increase rate in 15-20% it can be said for sure that the next couple of years (even including Crimea annexation and war in Donbass) the consumption of liquefied gas in Ukraine may reach 1.5 mln. Tons. Of this amount about 80-85% will be taken by the motor-fuel. The LPG-market exactly remains the main locomotive.

However the players should be ready the Ukrainian government may think deceptively of wealth, that will result in new fiscal initiatives, as it had been in 2016.